Matt Yglesias brings up my favorite stylized fact about health care. The rise and fall of HMOs. I was – as you might imagine – an enthusiastic supporter of HMOs.
They seem like a wonderful innovative way for the market to development demand side cost control measure. And, they crashed and burned in the most horrific manner imaginable.
Matt says
But people have spent the past ten years voting with their feet away from this option. You often hear arguments about health care costs invoke the fact that the health care sector benefits from lots of explicit and implicit subsidies, which is true. But those subsidies weren’t suddenly created at the moment the worm turned on the HMO issue.
But, its worse than that. I remember the HMO episode vividly. They became the most hated name in American business. The constant source of material for late night comedians. A plot device anytime a TV writer needed an “evil” entity.
As a result both political parties caved in to popular pressure and went after the HMOs. From the LA Times circa 1998
Faced with growing voter concern about health care, both President Clinton and House Speaker Newt Gingrich on Thursday called for a bipartisan approach toward empowering consumers with a patients’ "bill of rights."
"I don’t believe this is a partisan issue anyplace but in Washington, D.C.," Clinton said during a rally on Capitol Hill with congressional Democrats and two maverick House Republicans.
This slips under my definition of Liberalization Failure. You can point to all the things that are wrong with government controlled health care but when you leave cost control to the private markets the populist backlash is so severe that governments can’t help but make the problem even worse.
Thus you end up with the most costly health care system on the planet.
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Sunday ~ September 18th, 2011 at 2:27 pm
Becky Hargrove
Let’s step into the future for a minute. I like to think that one of the stories as to how the Great Recession finally ended (how many years?) is that the healthcare system finally transformed itself into something unrecognizable from the early 21st century. And in the process, wealth creation came to local levels with links to international health standards.
Sunday ~ September 18th, 2011 at 10:29 pm
carstairs
Yes the public viewed HMO’s as another caster oil, but remember the great disconnect in healthcare is that the recipient believes that someone else pays for it.
If the consumer was faced with the actual choice of purchasing one plan or another the price trade off would make HMO’s more attractive.
Sunday ~ September 18th, 2011 at 11:04 pm
roublen
I think you’re overlooking the consolidation and recovery of pricing power on the part of providers, which seems to me a more important political force than a consumer backlash. (How politcally effective have consumer backashes against banking and higher education been?)
All the softie hospitals which would give away charity care without charging the uninsured usurious rates or going after them with bill collectors have been bought out/ shut down, leaving private hospitals adminstered by a bunch of hard-boiled eggs willing to be ruthless in treating uninsured/emergency patients as an opportunity to rack up billable hours, and then aggressively pursuing those claims through collection agencies.
Monday ~ September 19th, 2011 at 9:49 am
Charles
“You can point to all the things that are wrong with government controlled health care but when you leave cost control to the private markets the populist backlash is so severe that governments can’t help but make the problem even worse.”
Yeah, and the IPAB will fix it. They will be perfectly comfortable passing the buck to the IPAB, for the populist backlash that will result when the nation’s grandmas stop getting their hip transplants. Elected officials know that they will never be held accountable at the ballot box for someone else’s bad decisions — after all, it’s never happened before. Yup, sounds like the Congresspersons I know — they will hold the line on cost controls without fail.
Sooner or later, we have to realize that we have met the enemy, and it is us.
Monday ~ September 19th, 2011 at 10:50 am
Johnnie Linn
Hast hit it, carstairs.
The patient should bear the full marginal cost of the care. So a Paul Ryan style voucher system would be best if you want to give assistance to the poor. Roll unused vouchers back into the system rather than letting them be inheritable, otherwise, patients might suffer unexpectedly high mortality rates at the hands of their heirs.
Monday ~ September 19th, 2011 at 11:07 am
wlm
I agree with roublen about the power of providers relative to consumers.
I also think that incentives for providers are often perverse in healthcare. For many severe conditions (cancer, COPD, kidney failure, etc) treatment is expensive, but failure to treat is cheaper, both in the short and long term.
I don’t think we will come up with an HMO model that will address this market failure.
Friday ~ September 30th, 2011 at 1:28 pm
TheMoneyIllusion » Taxes and insurance
[...] instance, recent posts by Matt Yglesias and Karl Smith argued that HMOs failed the market test. Now I’m no fan of HMOs, but I don’t see [...]